This is insanely helpful. As employee #1 at a startup, should I get my 83b up front or in ~1 year when my first quarter of stock has vested?
You are investing a couple years of your life in this. That's probably investing a couple hundred thousand dollars of opportunity cost vs a job at large tech company.
You have plenty invested. You'll do well if they do well. Spend your liquid investments in something diversified.
- sincerely, a moderately lucky person who has joined 3 companies before employee 15
There are major benefits beyond tax savings. If you quit before a liquidity event you can easily keep the vested equity without worrying about paying taxes on unrealized gain.
If you wait, you get substantially more information. A company that makes it to a Series A has a much higher chance of succeeding, and you'll typically know that in your typical tenure of 1-3 years as a junior dev.
If you want to spend $10k cash on buying startup equity, at least call yourself an angel investor and go find a company that's willing to issue you a note that converts to preferred stock. It's too easy for a company to have a couple of missteps and wipe out most of the common stock value, even much later.
If you can't afford dropping $10k to buy your equity then you can't afford taking a $10k lower base salary -- let alone a $100k lower base.
If options, then I've only ever heard of doing an 83b election in concert with early exercise, so that you are effectively making the election on a stock grant.
I'm not sure whether you can choose to do within 30 days of every tranch of vesting. I've never heard of this, but I'd be interested to know whether this is actually possible.
Unless you exercise early, in which case it does.
Disclaimer: I am neither a lawyer nor a CPA. This is not tax advice.
According to [1], you have to pay the company for your shares in order to not be at substantial risk of forfeiture [2]. I understand that to mean that you need to both be granted and vested in the equity within the same 30 day period in order for it to qualify for 83b election. The timing doesn't work if your grant vests over a period years, hence the need to early exercise.
[1] http://www.seedsafefinancial.com/how-to-make-an-83b-election...
[2] http://www.henssler.com/blog/2015/3/27/substantial-risk-of-f...
> If options, then I've only ever heard of doing an 83b election in concert with early exercise
And
> The timing doesn't work if your grant vests over a period years, hence the need to early exercise.
Am I being unclear or are people just not reading what I'm writing? Also not sure where these downvotes are coming from. Definitely open to correction, but I've yet to see how it's possible to elect 83b on an option plan with vesting, if you can't / don't opt for early exercise.
You can (and should) think carefully on whether or not to actually early-exercise your shares, based upon the cost and prospects of the business.
You may also have or be able to negotiate getting an explicit put option at the same price, too. That is, if you can buy shares at 20 cents a pop, you can also sell back to the company any shares you bought at 20 cents also at 20 cents. (NB: put-call parity proves that the value of "call + cash required to exercise" exactly the same as "underlying security + put at same strike", so you have exactly the same amount of value. Well, so long as the assets don't yield dividends, at which point American options that allow early exercise have the same value as European options that don't, and start-ups generally don't pay dividends.)